​Texas’ property tax system has turned property owners into renters, where government is their landlord and Texans who struggle to pay annual tax bills face confiscation of their properties. Additionally, the growth of government is harming taxpayers and the economy through higher taxes and more regulation.

The goal must be to eliminate all property taxes as they violate property rights, destroy economic growth, and disproportionately hurt the poor while being subjectively determined as they support excessive local government spending. A good place to start down that road is by ending nearly half of the property tax burden in Texas through the elimination of the school maintenance and operations (M&O) property tax, which is supported by the 18 groups in the Conservative Texas Budget Coalition. This is relatively easier than other local tax jurisdiction because the state already determines the school finance formulas and has a way to distribute funds to school districts.

Let's discuss.

First, we must identify the problem.

From 1996 to 2016, total property taxes across the state have increased by 233% while the school portion of the property tax increased by 201%. Personal income has increased by 199%; however, the best metric of the average Texan's ability to pay taxes is measured by the compounded growth of population plus inflation for that period, which was only 123%. This means that the total tax levy increased by 1.9 times more than pop+inf and the school district tax levy increased by 1.6 times more than the average Texan's ability to pay.

It's no wonder that many people are being forced out of their homes and businesses because of skyrocketing property taxes. This is a travesty what government is doing to people who are trying to leave a legacy for their kids and grandkids.

This points to the disease of the symptom of high taxes: excessive government spending. Taxes (and deficits) are always and everywhere a spending problem. To gain control of skyrocketing taxes, we must first get control of the driver of the problem in excessive government spending.

This brings us to a solution: By limiting state and local government spending, Texas can use taxpayer dollars collected at the state level to eliminate the school maintenance and operations (M&O) property tax, which is nearly half of the property tax burden, very soon. While other options have been tried in the past, like raising the homestead exemption and swapping the property tax with a reformed franchise tax ("margins tax"), those didn't permanently reduce property taxes--making those attempts a failure in the eyes of most taxpayers.

Fortunately, there are solutions.

One option is to permanently buy down the school M&O property tax with state surplus dollars until it is eliminated. Here's how:

Consider similar language as in SB 66 (2018) whereby biennial growth of general revenue-related funds (GRR) above 4% biennially would go toward buying down the school M&O property tax rate each session.

Have school districts set their tax rate each year to reduce property tax revenue by the amount of the state’s replacement funding until eliminated.

Allow school districts to only exceed this rate with the approval of more than 50% of voters in an election with at least a 20% turnout, but excess revenue raised by the vote will be recaptured by the state.

If the historical rate of GRR growth holds, Texas should be able to eliminate the school M&O property tax in 11 years (see Table below). If GRR growth is lower, then it will take longer.

In addition, to slow the growth rate of the other local tax jurisdictions, increases in city, county, and special purpose district property tax revenue will be limited to 2.5% annually to keep local governments from raising taxes to fill the gap caused by lower school district taxes. The limit can be exceeded with the approval of 50% of voters in an election with at least a 20% turnout.

This accomplishes the task of slowing state and local government spending while connecting spending less with actual tax relief with the eventual elimination of nearly half of the property tax burden in Texas.

Another option is to replace the school M&O property tax by broadening the sales tax base and limiting state and local government spending. Here's how that could work:

Consider similar language in HB 285 (2017) that would eliminate the school M&O property tax by broadening the sales tax base so the tax rate works politically and economically.

Goal should be to sufficiently broaden the base to fund elimination of the school M&O property tax without taxing the transfer of property or raising the tax rate much if at all.

Given that since Adam Smith we have known that the wealth of nations is from the formation and accumulation of capital and that property is nothing more than capital, we should not tax property. This is particularly true if we don't eliminate all property taxes because we don't want a property tax levied by cities, counties, and special purpose districts and a transfer tax imposed by school districts to ratchet around over time.

This should also include a state spending limit as noted in SB 66 that says any GRR above 4% growth biennially would go to buying down the franchise tax or sales tax along with an automatic rollback election for other local tax jurisdictions of 2.5% annually.

This accomplishes the task of slowing state and local government spending while connecting spending less with actual tax relief with the eventual elimination of nearly half of the property tax burden in Texas.

The following Table shows different sales tax bases and rates starting with taxing everything in the private sector then subtracting multiple industries measured by the Bureau of Economic Analysis as to keep from resulting in a value added tax system. In other words, we could keep the same sales tax rate of 8.25% (state portion is 6.25% and local portion is a max of 2%) with a GDP base of around $750 billion, which is about half of the private sector economy and about 67% higher than the base today.

Clearly there is no silver bullet. This will be a difficult hill to climb whichever option is chosen.

​Recently, two economists from Rice University estimated that if the buy down option or the swap option over time was chosen, the Texas economy could expand by about $12.5 billion above expected growth and private sector job creation could increase by 183,000 net jobs above expected growth soon after reform.

The Texas Model is strong, but there's more that must be done. These options would provide a clear path to more prosperity and less of a burden of holding property until you can finally own it when property taxes are eliminated entirely.

​Texans appreciate living in a state that values liberty, sensible business policy, and, perhaps most importantly, a strong dislike for taxes, which inevitably infringe on the first two values.But, in comparison with other states, Texas is beginning to lose its competitive edge in business climate as noted in the Tax Foundation’s recently released 2019 State Business Tax Climate Index.

The report ranks all fifty states based on the burdens of each state’s corporate income tax, individual income tax, sales tax, unemployment insurance, and property tax.Figure 1 presents the ranking of each state whereby the top-ranked states include either states without at least one major tax, such as the individual income tax, or states that have all major taxes with low rates and broad bases.

Meanwhile, poorly ranked states share similar shortcomings such as complex non-neutral taxes and comparatively high tax rates, such as in the three worst ranked states: California (48th), New York (49th), and New Jersey (50th).

In this year’s report, Texas’ overall rank took a hit, sliding from 13th best nationwide in 2018 to 15th best for 2019. Yet, the drop is not due to new policy as the state’s individual category scores remained unchanged and actually improved by 8 ranks for Unemployment Insurance. Rather, the new lower overall rank highlights Texas’ stagnation in decreasing its tax burden as other states jump on the opportunity to increase their prosperity from lower burdens.

While Texas excels in the category of individual income tax because as it doesn’t have one, the state is consistently held back by its corporate income tax portion of the index, which remains unchanged at 49th, or second worst!

This is because Texas’ business tax is a gross receipts-style tax that is costly to comply with and pay. If Texas eliminated this onerous tax, the Tax Foundation has found the state’s business tax climate overall rank could improve to 3rd best. And the Texas Public Policy Foundation and the Legislative Budget Board (LBB) have estimated large economic gains.

Texans have been hurt by burdensome local property taxes for too long, with that ranking in the report being 14th worst in the last three years. We know all too well about complexity, high rates, and lack of voter oversight of Texas’ local property tax system.

To overcome this over-burdensome system, the Foundation has recently released a report detailing a strategy to slow the growth of state and local government spending in order to use surplus state funds to permanently reduce the school maintenance and operations (M&O) property tax until its eliminated. This would end nearly half of the property tax burden in Texas within about a decade while increasing funding for school districts over time with state taxes that would eventually fund 100 percent of schools M&O.

Moving forward, Texas’ elected officials should consider these rankings by the Tax Foundation and other reports when looking for ways to improve the state’s business tax climate so Texans have the best chance to start a new business or gain employment.

The Texas model of limited government has contributed to human flourishing, where 24 percent of new civilian jobs created nationwide have been since December 2007, but there’s always room for improvement.

​Texas’ property tax system has turned property holders into renters, where government is their landlord and Texans who struggle to pay annual tax bills face confiscation of their properties. Additionally, the growth of government is harming taxpayers and the economy through higher taxes and more regulation.

For example, Eddie Wilson owns the landmark Austin restaurant Threadgill’sbut recently announced he must close a location soon noting that he is “Flummoxed and bludgeoned by property tax increases, the grim truth is that we can’t afford it on the slim margins you make on meatloaf and chicken-fried steak.”

Substantial, permanent property tax relief is needed.

The Foundation’s recent report provides a plan of limiting government spending to eventually abolish property taxes in Texas by starting with eliminating the school maintenance and operations (M&O) property tax—nearly half of the property tax burden in Texas.

The school M&O property tax is a good place to start because the level of student funding is determined by state funding formulas that are first funded by local property taxes and then by state dollars. Although there’s a lot of noise about whether local governments or the state legislature is at fault for a skyrocketing local property tax burden, the truth is excessive spending is the problem and taxpayers foot the bill regardless (see figure below). The relative ease of this process is lost with other local tax jurisdictions.

Our plan is simple: State and local governments would limit spending such that state revenue permanently replaces the school M&O property tax within about 11 years. In other words, every dollar not spent by the state or school districts will produce a 90-cent property tax cut for Texans until half of the property tax in Texas is eliminated.

Increases in city, county, and special purpose district property tax revenues will be limited to 2.5 percent per year. The limit can be exceeded with the approval of 50 percent of voters in an election with at least a 20 percent turnout.

Limit state spending:

Future general revenue-related (GRR) revenue increases will be limited to 4 percent per biennium, which covers population growth and some inflation but less than the Conservative Texas Budget to provide funding for property tax relief.

State dollars replace school M&O property tax revenues:

School M&O property taxes, estimated to be $24.77 billion in 2018 ($51.3 billion in 2018-19), make up about one-half of the heavy property tax burden Texans face.

Historical state GRR growth has averaged 10.08 percent in the two-year budget cycles (biennia) since 2004-05.

Ninety percent of the 6.08 percentage-point surplus between future GRR growth (10.08 percent) and the spending growth limit (4 percent) will be used to eliminate school property taxes, with the state increasing state education funding each year to gradually replace M&O of each local school district’s property tax revenue.

The additional 10 percent of the surplus would remain in GRR to cover potential revenue volatility.

School districts will set their tax rate each year to reduce property tax revenue by the amount of the state’s replacement funding. Districts can only exceed this rate with the approval of more than 50 percent of voters in an election with at least a 20 percent turnout. Excess revenue raised by the vote will be recaptured by the state.

Result: If the historical rate of GRR growth and the spending limits hold, Texas should be able to eliminate the school M&O property tax in 11 years. If GRR growth is lower, then it will take longer, or vice-versa. Regardless, the state would eventually fund 100 percent of school M&O statewide and shift toward a more prosperity-supporting sales tax system.

Table 3 shows how the plan could work mathematically given the above criteria:

Under this plan, Texans will experience substantially lower property tax bills immediately and slower growth in them over time along with the broader economic benefits of slower government spending and a lower tax burden. Other options, such as sufficiently broadening the sales tax base, that begin with spending restraint to replace the school M&O property tax may be considered to deal with this problem.

​Limiting government spending and using state dollars to replace nearly half of the property tax burden that funds education would shift Texas toward a more efficient sales tax system to let people prosper.

Since Texas’ modern property tax system took shape in 1979 with the passage of the “Peveto bill,” there have been three major attempts by the Texas Legislature to provide relief for taxpayers. Unfortunately, none of the attempted solutions created lasting reductions in property taxes as the attempts failed to address increased spending—the cause of increasing taxes—and instead simply shifted around the burden.

1997 Reform Attempt: Homestead Exemption Increase by $10,000The 75th Texas Legislature attempted to reduce the rising property tax in 1997 by increasing the homestead exemption for school district property taxes by $10,000. Instead of allowing only $5,000 to be deducted from the taxable value of an individual’s property, the taxpayer could now deduct up to $15,000. The increased exemption was accompanied with homeowners who were 65 and over receiving a freeze on their school district property taxes. The total tax relief package was estimated at $1 billion. However, it resulted in little to no effect as school district property taxes increased by nearly $1 billion and total property taxes increased $1.4 billion the year after implementation and continued rising thereafter.2006 Reform Attempt: Property Tax-Franchise Tax SwapAfter the Texas Supreme Court determined the school finance system was unconstitutional in 2005 from an essentially statewide property tax, the Legislature in a 2006 special session aimed to bring property tax relief. The solution was a reformed business franchise tax to what’s known as the margins tax today and increase the motor vehicle sales tax and tobacco tax while also changing the school finance formulas. While the outcome was an initial reduction in school district and total property taxes, the declines were marginal the first year with taxes being substantially higher than 2006 in 2008. As a result, instead of sustained property tax reduction, Texans experienced an increase in both local property taxes and state taxes. Moreover, the swap exchanged an already poor property tax system with an arguably worse margins tax that should be eliminated.2015 Reform Attempt: Homestead Exemption Increase by $10,000Similar to the 1997 reform, the 84th Texas Legislature looked to raise the homestead exemption for school districts property taxes another $10,000 to $25,000. Again, lower local property tax collections were replaced with state funds so as to not decrease school district budgets. Yet, much like 1997, there was no improvement in the tax burden as school property taxes increased by $1.7 billion and all property taxes increased by almost $4 billion the next year.​ConclusionWith past property tax relief failures of increasing the homestead exemption and the franchise tax swap, the time has come for a strategy that employs reducing the growth of government spending at the state and local levels while using state dollars to eliminate property taxes.

​Despite the economic success of the Texas Model of relatively fiscally conservative governance, a skyrocketing local property tax burden remains one of the state’s most pressing policy challenges.

While Texans have the luxury of not paying a state personal income tax, which should be constitutionally banned, they’re currently weighed down by more than 5,100 local taxing jurisdictions that boast the sixth highestproperty tax rate nationwide. These locally-determined tax rates along with often subjectively appraised property values combine to give the total property tax levy statewide of $56 billion in 2016—contributing to an average property tax burden of more than $8,000 per year for families of four.

Although many Texans live in uncertainty year-to-year on what their property tax bill will be, much of the damage of such ominous tax burdens are not so uncertain: discouraged economic growth, distorted investment decisions, depressed job creation, and ultimately renting property from the government forever.

While the pain is felt statewide, it’s particularly felt among housing-rich but income-poor individuals, such as the elderly, who often must move as increasing tax liabilities extend beyond their means. In fact, some Texans who have paid off their mortgage now pay more for their property tax liability than prior mortgage payments, forcing them out of their home. The high property tax burden also keeps some people from ever having the means with which to purchase property.

Both of these issues limit the liberty and economic prosperity of Texans from property taxes at often no fault of their own. This is particularly harmful because people aren’t able to ever own their home but rather pay rent to the government forever.

And even those who do not have property are burdened as renters can reasonably expect property managers to pass the tax along to them and consumers pay more goods and services as business owners do the same.

The culmination of these increases by local tax jurisdictions contribute to the total property tax levy statewide increasing by 233 percent to $56 billion in property taxes collected in 2016—the single largest tax imposed in the Lone Star State. For comparison, there may be a need for increasing spending and therefore taxes to fund increases in population and inflation.

However, in this period, the state’s population growth increased by 47 percent and price inflation increased by 53 percent—collectively well below the increase in property taxes.

On an average annual basis, the total property tax levy increased by 6.3 percent during that period; however, population growth increased by 1.9 percent and price inflation increased by 2.2 percent. Again, these growth rates indicate the mounting burden on Texans compared with a potentially reasonable argument for spending and taxing more.

With many local tax jurisdictions raising property taxes at rates that are outpacing key measures of Texans’ ability to pay, the Texas Legislature has attempted to limit the growth of property taxes but to little avail. The steady increase in the property tax burden despite these unsuccessful attempts signal the real issue: Texas’ local governments don’t have a revenue problem, they have a spending problem.

In this Let People Prosper episode, I discuss how property taxes continue to skyrocket in Texas and highlight options that would provide property tax relief. The key to any long-term tax relief is to limit government spending so that the burden of government can be reduced.

​The result of taxing something is that you will get less of it. That's simple, correct? But the details of how to best collect taxpayer dollars to fund limited roles for government gets complicated. I try to break this down simply at the video above.

According to the Texas Comptroller, property taxes and sales taxes are both regressive. Any time you have a flat tax rate, higher income people will pay a lower share of their income on taxes than lower income people. But the costs of property taxes are substantial, with businesses and individuals each paying about half for school M&O property taxes. Sales taxes, on the other hand, allow people the freedom to decide how to spend their money, don not have to tax real estate (capital formation and accumulation--keys to wealth of nations), and are transparent. Individuals pay about 60% of sales taxes collected while businesses submit about 40%, but we know that businesses don't ultimately pay taxes because they just pass those costs along to consumers (us) in the form of higher prices, lower wages, and fewer jobs available over time.

As noted in previous episodes, I have long supported the elimination of property taxes in Texas. There are multiple ways to do so by possibly swapping them (sales tax rates are lower now because of expanded economic growth since these rates were calculated) with a reformed sales tax and/or buying them down permanently over time. The key is to limit government spending so that the burden of government can be reduced. ​

We know that sin taxes (e.g. carbon tax or cigarette tax) or tariffs are poor forms of taxation. Income taxes are also a terrible form of taxation. Check out the table below that provides information for the 9 states without a personal income tax and the 9 states with the highest personal income tax rates. Those states without a personal income tax blow the others out of the water regarding multiple economic indicators.

Of course, the key is limiting spending. Let's move to a tax system with just a sales tax for more economic prosperity, which eliminating the school M&O property tax would be a great start.

I gave the following presentation at a policy forum on property tax reform at the Arlington Chamber of Commerce. ​Here's an overview of the forum from the Greater Arlington Chamber of Commerce:

Property tax relief and slowing the growth of property taxes proved to be a topic capable of bringing approximately 120 business leaders and elected officials together at the Greater Arlington Chamber of Commerce on Friday, August 3. Four experts on property taxes presented their perspective on the issues and then responded to questions from Tarrant County Property Tax Assessor/Collector Ron Wright. The event was the first ever sponsored by the Coalition of East Tarrant Chambers.

Vance Ginn, Chief Economist with the Texas Public Policy Foundation in Austin, presented TPPF's view of how to completely eliminate school maintenance and operations property tax. Dr. Aaron Reich, President of the Arlington ISD Board of Trustees, talked about the complications of the Texas system for funding property taxes and how it seems to short change districts like Arlington. He made the point the state uses taxes collected as "school" taxes for other state expenses like health care and transportation. County Judge Glen Whitley represented the perspective of cities and counties and made the point that without a state income tax, which he does not favor, Texas has a two-legged stool which is hard to sit on. He took great exception to the idea of eliminating property taxes and replacing them with more sales tax could be made to work. State Representative Matt Krause brought the perspective of the legislature to the discussion. He shared about the state's overall shortage of funds and how growing Medicaid expenses are crowding other important items in the budget.

In this episode (YouTube channel Vance Ginn Economics), I explain how institutions matter from an economic, social, and political perspective. This episode is longer than usual (30 minutes) to go through these institutions and explain how the Texas Model supports prosperity while highlighting how it could be improved by limiting spending and eliminating property taxes--starting with school property taxes.

Given how federal institutions have failed for so long, though they are improving now, there is a need to look at the states.

A good comparison is the largest four states in terms of economic output and population of California, Texas, New York, and Florida. These states have very different institutions, whereby Texas and Florida have primarily inclusive (liberty-related) institutions and California and New York have primarily extractive (redistributionary) institutions. The economic results from these are clear over the last decade-plus with Texas and Florida leading the way in most economic indicators, even when considering income inequality and poverty.

I highlight how the Texas Model has led the way in terms of prosperity, but there is more that needs to be done, specifically limiting state and local government spending. Specifically, there is no education spending problem in Texas, as noted by data from the Texas Education Agency, and the state share of education spending hasn't declined. So, the state spending more, as education lobbyists request, will not lower property taxes.

I then go through the option of eliminating school maintenance & operations property taxes over 11 years by limiting spending and using state surplus dollars to permanently buy school property taxes down until they are eliminated. As often asked at these events, I also briefly discuss the option of swapping school property taxes with a sales tax that has a broader base so the rate doesn't increase much if at all then cut taxes with surpluses dollars thereafter.

I discuss other ways to improve the Texas Model as well, such as passing a stronger state spending limit and eliminating the business margins tax. These steps will allow Texas to be even more prosperous by getting government out of the way with an institutional framework that support entrepreneurial activity and human flourishing today and far into the future.

Thank you for watching! Please share as you see fit. Have a prosperous day!

Texans pay state and local taxes in one form or another. Given Texans desire prosperity and liberty, an optimal tax system creates the least burden on economic activity while funding limited government spending. While the details of taxation can get complicated quickly, core principles of sound taxation include a tax that’s simple, flat, and broad-based.

Achieving an optimal tax system begins with the derivation of taxation. First, politicians determine government provisions from voter demand and rent-seeking activity to win votes. Second, those provisions require government spending. Third, government spending requires some form of funding mechanism, hence taxation.

Therefore, a key to an optimal tax system is to educate voters on the costs and benefits of government provisions while effectively limiting government spending, which can be done by putting laws in place to add budget transparency and reduce rent-seeking behaviors while strengthening limitson government spending.

While the Texas Legislature has appropriately restrained government spending below the key measure of population growth plus inflation in the last two budgets, the state budget is up 7.9 percent above this measure since 2004, meaning taxes are higher and economic growth is lower today than otherwise. So, further spending restraint is necessary to help Texans be more prosperous and Texas more competitive. This could be achieved by limiting state spending to 4 percent and using state surplus dollars to provide tax relief, such as eliminating school M&O property taxes over time, until we can get to an efficient sales tax.

The Texas Comptroller notes that sales and property taxes in Texas are regressive. A flat tax rate results in higher income people paying a lower share of their income on taxes than lower-income people, but higher income people pay much more in taxes. The costs of property taxes are substantial, with businesses and individuals each paying about half for school M&O property taxes, and they hurt lower-income property owners and even renters as these taxes subjectively skyrocket.

Sales taxes, on the other hand, allow people freedom with their money to spend or save, do not have to tax capital, and are transparent. Individuals pay about 60 percent of sales taxes collected while businesses submit the rest, but businesses don't ultimately pay taxes as they pass costs along to people through higher prices, lower wages, and fewer jobs. An example of this is the recent U.S. Supreme Court ruling that allows Texas to expand the sales tax base to all online transactions, which most are already taxed online at places like Amazon and WalMart, but any additional tax revenue should be used for tax relief because Texas state and local governments already spend too much.

A sales tax is pro-growth because it allows individuals to choose what’s best for themselves. Other forms of taxes that try to socially engineer behavior, such as a gas tax or carbon tax, end up distorting economic activity and hurting lower-income households most.

In conclusion, by effectively limiting government spending that allows a move to an optimal tax system based on a sales tax of final goods and services, Texans will flourish and other states will have an optimal system to follow.

The result of taxing something is that you will get less of it. That's simple, correct? But the details of how to best collect taxpayer dollars to fund limited roles for government gets complicated. I try to break this down simply at the video above.

According to the Texas Comptroller, property taxes and sales taxes are both regressive. Any time you have a flat tax rate, higher income people will pay a lower share of their income on taxes than lower income people. But the costs of property taxes are substantial, with businesses and individuals each paying about half for school M&O property taxes. Sales taxes, on the other hand, allow people the freedom to decide how to spend their money, don not have to tax real estate (capital formation and accumulation--keys to wealth of nations), and are transparent. Individuals pay about 60% of sales taxes collected while businesses submit about 40%, but we know that businesses don't ultimately pay taxes because they just pass those costs along to consumers (us) in the form of higher prices, lower wages, and fewer jobs available over time.

As noted in Episode 8, I have long supported the elimination of property taxes in Texas. There are multiple ways to do so by possibly swapping them (sales tax rates are lower now because of expanded economic growth since these rates were calculated) with a reformed sales tax and/or buying them down over time. The key is to limit government spending so that the burden of government can be reduced. ​

We know that sin taxes (e.g. carbon tax or cigarette tax) or tariffs are poor forms of taxation. Income taxes are also a terrible form of taxation. Check out the table below that provides information for the 9 states without a personal income tax and the 9 states with the highest personal income tax rates. Those states without a personal income tax blow the others out of the water regarding multiple economic indicators.

Of course, the key is limiting spending. Let's move to a tax system with just a sales tax for more economic prosperity.​

​This commentary was originally featured in the Odessa American on March 8, 2018.

Imagine: You own a business. You love what you do, the opportunity to employ people, and satisfying customers. But the cost of doing business is escalating as local property taxes increase.

Down the road, a large corporation started construction of a new building. They considered other locations before choosing your community. That corporation received a tax abatement with the school district. That means for 10 years, they will pay only a small portion of taxes due without abatement. Meanwhile, your business does not benefit from a tax abatement, and you will likely pay higher property taxes every year.

Even worse, that new corporation may compete directly or indirectly with your business.If that sounds frustrating, or outright unfair, it should. Yet, it happens often using Chapter 313 of the Texas Tax Code.

Actually, it could soon happen in your backyard.

The Ector County Independent School District Board of Trustees received a request by 174 Power Global Corporation to conduct a public hearing on an application under that chapter, also known as the Texas Economic Development Act. The company seeks a 10-year, 100 percent tax abatement for a solar energy project that may bring a $50 million investment and create two full-time jobs, according to documents submitted to the school district.

Tax abatements like this are nothing new and are justified under the guise of economic development.

The Texas Comptroller reports that 53 percent of these tax abatements in 2016 were for renewable energy. Renewable energy projects received 25 percent of the total estimated gross tax benefits but represented only 11 percent of jobs committed for creation.

Supporters argue tax abatements increase tax revenue and foster job creation through new investment by businesses. However, these tax abatements exemplify why we should pay close attention to not only effects that are seen, but also those that are unseen.

If these new businesses create permanent jobs, demand for basic government services may grow. If the businesses responsible for this demand pay lower taxes than existing businesses, current businesses – and individual taxpayers – foot the bill.

In addition, the exempted property value under such an agreement is excluded from school finance formulas that determine much of the funding for school districts. The Legislature generally covers declines in a district’s revenue, thereby forcing taxpayers statewide to pay more for certain districts that provide tax breaks to favored businesses.

School districts can also negotiate “supplemental payments” from businesses applying for an abatement. These payments are paid outside the school finance system.

Hence, school districts are incentivized to accept all tax abatement applications because they can replace lost local revenues with state dollars and can get supplemental payments.

And what do communities gain by offering such tax incentives? It’s probably not as much as they may think.

A recent study by Dr. Nathan Jensen of the University of Texas at Austin examined the bargaining power between school districts and businesses with plans to expand or relocate in Texas. Using supplemental payments as a percentage of the preferential tax treatment businesses were ready to give up, and a survey of economic development professionals, he concluded that around 85 percent of these businesses would have come without an abatement.

A bill passed last session tried to remedy another problem resulting from such tax abatements.The legislation modified Chapter 313 to prevent wind energy companies from receiving tax abatements for wind turbines built within 25 nautical miles of military aviation bases. Offering preferential tax treatments in areas close to these bases often encouraged businesses, including wind energy businesses, to locate there despite challenges for flight operations, such as radar interference.

These costs to taxpayers highlight why government, including your school district, shouldn’t be in the business of economic development. Government should preserve liberty, not favor a few, politically connected businesses at the expense of all other taxpayers

​Texas should repeal tax abatements like these and other corporate welfare programs while focusing on reducing government spending and tax burdens so everyone has more opportunity to prosper.

I appreciated the opportunity to testify before the Texas House Ways & Means Committee regarding eliminating property taxes in Texas and replacing them with a reformed sales tax that would have a sufficiently broad base for the lowest rate, along with making structural reforms to local spending.

House Bill 285 would eliminate school district M&O property taxes and replace them with a 12 percent sales tax rate, which would leave other property taxes in place that have risen at a faster rate while not expanding the tax base to achieve a lower rate. Regardless, the Foundation is encouraged with the discussion about eliminating property taxes.

But there are ways to improve this bill and others discussed at the hearing that would take only a piecemeal approach in eliminating property taxes, which both property taxes and sales taxes should never be on property. The elimination of all property taxes should be combined with structural reforms to student-centered funding in public education and spending limits on local governments, which excessive spending is the true driver of higher tax burdens.

I provided in-depth research and data on these issues to hopefully move the ball toward eliminating burdensome property taxes on Texans once and for all.

From 2000 to 2015, property taxes levied statewide soared by 132 percent, outpacing combined population growth and inflation that grew just 82 percent.

Critics have been quick to attack the governor’s push for property tax reform, claiming that the problem can be solved by increasing state government spending on public education. Most reasonable people recognize that throwing money at Texas’ property tax problem, regardless of source, isn’t an actual solution.

The answer lies in structural property tax reform that emphasizes accountability and transparency, at least until officials can replace the property tax system entirely with a more efficient, reformed sales tax.

It’s only by changing the nature of the system, both incrementally and in radical fashion, that Texans will find real relief. That’s something that can’t happen soon enough, considering some of the recent trends.

Excessive property tax levy increases have been partially fueled by the mammoth number of property taxing jurisdictions here in Texas. Today, more than 4,100 local governments that levy a property tax collect more than $52 billion from homeowners and businesses statewide. That translates into a burden of roughly $1,900 per Texan or about $8,000 for a family of four.

While it’s true that most of this burden — 54 percent — can be traced to school districts, it’s a mistake to think that pouring even more state tax dollars into public education will solve the problem.

Already, the state spends roughly 40 percent of the funds it has discretion over on public education. An increase would shift the already-excessive government burden from local to state. It could exacerbate the problem by giving school districts breathing room to raise taxes even higher to pay for wish-list items, like multimillion-dollar football stadiums.

Let’s be clear: School district property taxes are a big part of your property tax bill — but they aren’t the only part, nor are they the fastest-growing portion.

From 2005 to 2015, total property taxes levied statewide increased by 4.9 percent on an average annually. Separating levies into major categories of property taxes, average annual growth increases were: 7 percent by special purpose districts, 6.3 percent by counties, 5.6 percent by cities and 4 percent by school districts.

Clearly, there is room for reform across the board.

Two bills discussed during the regular session would have provided long-term property tax relief. Senate Bill 2 would have set the automatic rollback election to 4 percent for cities, counties, and special purpose districts — those that had the largest growth rates during the last decade. Senate Bill 669 would have enhanced property tax transparency.

The reforms encompassed in these bills should be the target for lawmakers in the special session. Over the long-term, lawmakers should be thinking about how to achieve the ultimate prosperity-generating reform: the elimination of property taxes entirely.

In tandem, these reforms will not only be good for taxpayers, but also great for the economic health and prosperity of Texas.

In 2015, more than 4,100 local governments levied property taxes totaling $52.2 billion, or roughly $1,900 for every man, woman, and child in the Lone Star State. That’s a jump in the tax levy of more than $3 billion from the prior year and almost $12 billion compared with just five years ago.

Texans’ property tax bills aren’t just big — they’re also growing quickly. From 2000 to 2015, property tax levies soared statewide by 132 percent. Over the same period, standard economic measures like population growth and inflation increased just 79 percent.

These data reinforce what everyone already knows — that Texas’ property tax system is broken and needs an overhaul lest more people lose their homes, businesses, and futures.

Fortunately, the problem has not gone unnoticed at the Capitol where legislators are debating a number of different fixes, with one particular solution looking more and more likely.

In short, the Legislature looks poised to require cities, counties, and special districts to get permission from voters if already-high property taxes grow too fast in any one year. That focus on voter approval could be a real game-changer.

Today, Texans must know and understand what a rollback tax rate is, wait for one of their many local governments to exceed it, and then be ready to quickly obtain a sizable number of signatures to petition for an election. That’s a lot to ask from families who are busy working, raising kids, and generally dealing with life’s challenges.

To simplify the process and level the playing field, lawmakers are proposing to reduce the rollback rate by half and require an election to be held automatically if local officials want their budgets to grow by more.

By drawing a line in the sand and requiring an election if it’s crossed, Texans can expect future property tax bills to grow more slowly while still allowing local officials an avenue to raise tax revenue if they can make a sufficient case to the public. This not only puts more control in the hands of local voters but also creates a greater level of accountability.

Some critics have sought to cast these good government reforms in a bad light by suggesting that it would harm public safety. But as has been documented time-and-again, there’s plenty of waste, fat, and abuse in city budgets that can be better prioritized before we even get close to that point.

If the current legislative effort is deficient in any way, it’s that it excludes school district property taxes — a major driver of the problem. However, it’s excluded for a good reason: the school finance system is ridiculously complex and should be addressed separately.

Given these structural property tax reforms take effect, they would dramatically alter the local landscape for the better. However, these should only be considered intermediate reforms.

The ultimate prosperity- generating reform is to eventually eliminate property taxes, which another bill — HB 1050, which has yet to receive a hearing — proposes to do. Research undergirding the bill shows that this can be done in a revenue-neutral way by enacting a reformed sales tax that broadens the tax base and increases the rate from 8.25 percent to around 11 percent. This wouldn’t just be a tax swap but rather a much more efficient tax system that would contribute to higher incomes and more jobs created, and allow you to actually own your property.

Texans want more control over their livelihood instead of giving it to local officials that may unnecessarily raise their taxes to pay for excessive spending. These common sense structural reforms would enhance local control by voters.

The Tax Foundation recently released their 2017 State Business Tax Climate Index report detailing the rankings of all fifty states. The overall score is determined by the burdens of each state’s corporate income tax, individual income tax, sales tax, unemployment insurance, and property tax. The purpose of the report is to “show how well states structure their tax systems, and provides a roadmap for improvement.”

Chart 1 shows the ranking of each state. A common factor between a majority of the top performing states is the absence of at least one major tax, such as the individual income tax, and for states that do levy all the major taxes, they do so with low rates and broad bases. States ranked in the bottom bracket share similar shortcomings such as complex non-neutral taxes and comparatively high tax rates.

Texas’ overall ranking declined one position to 14th nationwide. While Texas excels in the unemployment insurance and individual income tax categories, the overall ranking decline can be attributed to poor scores for corporate income and property taxes.

Although the 2015 Texas Legislature cut the business franchise (margin) rates by 25 percent for a total value of $2.6 billion, the relative ranking of the corporate income tax remained unchanged at 49th, or second worst! This is due to the fact that the business tax is a gross receipts-style tax that is costly to comply with and pay. The Tax Foundation published a previous paper that finds the state’s overall business tax climate would increase to 3rd if the margin tax was eliminated. Moreover, the Texas Public Policy Foundation and the Legislative Budget Board (LBB) have estimated large economic gains from eliminating this onerous tax.

The Tax Foundation also notes that Texas’ local property taxes is a thorn in taxpayers’ side as the relative ranking of property taxes declined from 33rd to 37th, or 14th worst! Its structural complexity, unwarrantedly high rates, and lack of voter oversight continue to confuse and burden taxpayers. The 84th Legislature took steps to lower this burden by increasing the homestead exemption for school districts by $10,000 to $25,000. However, as the LBB recently noted, although homeowners paid a lower property tax amount than without the exemption increase, most homeowners paid more for their property taxes this year.

To overcome the overwhelming burden of local property taxes statewide, the Texas Public Policy Foundation published a paper highlighting key reforms that should be made in the short run and long run. Specifically, structural reforms should be made in the short run by giving voters a stronger voice in the growth of property taxes by requiring an automatic election for any local government whose revenues increase above a certain limit in any one year. In the longer run, we imagine Texas with substantially more economic growth and job creation from replacing the inefficient property tax system with a higher, broader-based efficient sales tax.

The 85th Legislature should take these rankings by the Tax Foundation and other reports into consideration to improve the state’s business tax climate. The goal is not necessarily to beat other states, but to give Texans the best chance to prosper, which can happen if we improve our rankings to encourage more new businesses and job creation.

You’ve likely recently received this year’s property tax appraisal. If you own property in Travis County, after picking your chin up off the floor from the massive increase, there could have been a sense of delight or frustration.

​It’s nice that home values are reported to have increased, on average, 9 percent countywide for those looking to sell their home soon. But the vast majority of Austinites not looking to sell their home stress about paying more for inflated property taxes.

Fortunately, there are measures that state and local officials could take to put taxpayers back in the driver’s seat instead of local taxing jurisdictions and appraisal districts. The ultimate long-term solution must be to allow Texans the freedom to own their home by eliminating property taxes.

Last November, voters overwhelmingly approved a constitutional amendment passed by the Texas Legislature that increased the homestead exemption for property taxes supporting school districts by $10,000 to $25,000. This helps to provide welcome tax relief in a state that has the 14th most burdensome property tax system in the nation.

However, as values continue to rise this measure just lowers their property tax bill temporarily at best.

Consider an Austin home valued at $285,000. Given tax rates by each local jurisdiction and the appropriate exemptions, this home would need to increase by no more than 2 percent for no change in tax liability. However, the average 9 percent increase would force this homeowner to pay about $450 more.

Local property taxes levied statewide increased by 101 percent compared with only a 70 percent increase in compounded population growth plus inflation from 2000 to 2013. With soaring property taxes, homeowners deserve to have a greater voice in taming this burden.

A way to give them that voice is by reforming the rollback provision. This would require an automatic local election to approve tax rates that would increase property tax revenue by more than the lesser of either population growth plus inflation or 4 percent. This approach is gaining traction in the Legislature as it will provide greater budget transparency and help limit the rising tax burden.

Although raising the homestead exemption and reforming the rollback provision are good steps, this leaves the problem of paying rent to the government forever.

Republican primary voters noted their frustration with this burden by their response to a proposition last month that read: “Texas should replace the property tax system with an alternative other than an income tax and require voter approval to increase the overall tax burden.” It passed by a wide margin with 69.5 percent in favor.

Clearly, Texans want more control over their livelihood instead of giving it to local officials that may unnecessarily raise their taxes to pay for excessive spending. In addition, this would allow homeowners to be delighted when they receive notice that their home value increased because they get to reap the rewards instead of stressing about paying higher taxes.

To replace property tax revenues in the most efficient way, research shows that the most simple, transparent, and economic enhancing option would be to enact a reformed sales tax. If the sale of property and services taxed in at least one other state were added to the current sales tax base, then the rate would increase from 8.25 percent to 11 percent. Not much of a change when you consider that you get to keep substantially more money as a homeowner and renter without property taxes.

This swap would provide meaningful tax relief for property owners, and it would have the added benefit of strengthening the state’s economy by encouraging capital investment — the primary driver of economic growth and job creation. Estimates show that this could create as much as $63 billion more in personal income and 337,000 net new jobs over five years compared with the status quo.

A sales tax would also have the added benefit of resisting excessive growth in local governments while still paying for essential services that property taxes support today. For example, state sales tax collections increased by only 86 percent compared with the 101 percent increase in property taxes from 2000 to 2013.

Bottom line: There are solutions to reducing excessive property taxes. In the short run, voters should have more control by reforming the rollback provision. But let’s not take our eyes off the ultimate prize for Texans to have more opportunity to reach their full potential and finally own property by eliminating property taxes.

Heflin is director of the Center for Fiscal Policy at the Texas Public Policy Foundation. Quintero leads the Think Local Liberty Project at the Texas Public Policy Foundation.

Don't miss this video of a panel I moderated recently on advancing the Texas model with a simple tax system.

The Texas model of low taxes, no individual income tax, moderate regulation, and a good lawsuit climate has generated prosperity for many Texans. Despite these gains, is the state’s tax system with an onerous business franchise tax and burdensome local property taxes the most efficient? Join us as the panel discusses potential improvements to the state’s tax structure so that the budget meets the needs of Texans while providing an environment conducive to the greatest economic opportunity for them to succeed.

This commentary, written by Dr. Vance Ginn and Nozim Ishankulov, originally appeared in print in the Midland Reporter-Telegram on December 27, 2015.

Despite slower economic activity in Midland County, property taxes owed continue to skyrocket. Therefore, lawmakers should consider options to provide permanent relief of these onerous taxes to fund essential local government services.

Contributing to the slower economy is a sustained drop in oil prices that’s led to a 22 percent decline in active rigs to only 32 in the County according to Baker Hughes. Less employment related to oil and gas activity has pushed the unemployment rate up from a cyclical low of 2.2 percent last December to 3.5 percent in October.

Although this mild slowdown suggests a weaker housing market, homeowners noticed that their home appraisal increased, on average, by 12 percent. They would ordinarily cheer the increase as it improves their wealth, but it also means that they face higher property tax bills that may not be associated with an increase in income.

Add to that the 11 percent increase in the County’s property tax rate excluding any other changes and many will risk living paycheck-to-paycheck or losing their home from a mounting property tax burden. This isn’t just in Midland, homeowners statewide face the 14th highest property tax burden in the nation according to the Tax Foundation.

Increases in the average appraisal value and tax rate in Midland will hurt those with low and fixed income the most, particularly the working poor and elderly, as property taxes rise from factors out of their control. A new school nearby may raise their home value forcing them to move to another area with cheaper housing and worse living conditions.

This type of life-changing event determined by the government and not voluntary exchanges in a market has reasonably created unrest among homeowners. For example, there were 701 people in Midland who signed a petition protesting the increase in the County’s property tax rate. Being politically engaged is important to confront higher taxes from excessive spending, but far too often citizens are unaware of their property tax liability.

To alleviate some of this burden, last month voters overwhelmingly approved the constitutional amendment passed by the Texas Legislature known as Prop 1. It increases the homestead exemption for school property taxes by $10,000 to $25,000. The recent Texas Public Policy Foundation’s report The Freedom to Own Property outlines how this will provide only short-term relief while eliminating property taxes and replacing lost revenue with a reformed sales tax advances liberty and prosperity.

The reformed sales tax could be as low as an 11 percent total rate compared with the current 8.25 percent state and local combined rate by broadening the base to include the sale of property and most goods and services taxed in at least one other state.

Unlike property taxes that are many times hidden in homeowners’ escrow account or in renters’ rent, the sales tax is easy to see on every receipt. While property taxes must be paid regardless of affordability, the sales tax is based on an individual’s discretion to purchase something.

By having more disposable income from paying lower mortgage payments and rent, Texans can allocate their income as they see fit whether it be to put food on their table, save for a rainy day, or hire new workers. Research highlighted in the Foundation’s paper finds that this swap could lead to substantial economic gains in the ballpark of $60 billion in new personal income and 340,000 new jobs over five years compared with the current trajectory.

Finally, and most importantly, this swap gives Texans the freedom to own property instead of renting from the government.

​​For the working poor and all Texans to benefit from owning property, more job opportunities, and more economic prosperity, lawmakers should consider long-term solutions to resolve skyrocketing property taxes with ending them being the best option.

With voter approval of Proposition 1 on Nov. 3, which raises the homestead exemption on property taxes for school districts by $10,000, Texas homeowners will get some reprieve from paying skyrocketing property taxes. Though this is welcome short-term relief, it’s time to stop tinkering around the edges of the nation’s 14th worst property tax system and abolish it so Texans have the freedom to own property.

Compared with a 70 percent increase in population growth plus inflation since 2000, local property taxes are up 101 percent, leaving a mounting annual tab of about $1,600 per Texan. Simply, property taxes are outstripping Texans’ ability to afford a home and put food on the table.

What should an Austinite expect from the latest round of property tax relief?

Let’s say you have a home in Austin at the median value of $285,000 that increased 11.3 percent during the last year according to Zillow.com. This substantial price increase in the housing market is from a combination of elevated demand from new arrivals to Austin, netting about 110 people every day, and the restricted supply from onerous regulations. Zillow notes that Austin’s real estate market is overheated as it forecasts only a 3.5 percent increase this year.

With more than 4,000 local taxing jurisdictions statewide, the five in Austin are the Austin Independent School District, City of Austin, Travis County, Central Health and Austin Community College that sum to a 2.38 percent total tax rate. Accounting for exemptions, such as the $15,000 exemption for the Austin school district, your property tax bill would be $6,262.

Proposition 1 raises this school district exemption to $25,000, reducing your annual bill by $122 with no other changes. Though more dollars in your pocket is always better, there’s more to the story.

If your home value went up by only 1.9 percent, you wouldn’t see any change in your tax bill, which is highly unlikely given recent trends. If your home value went up by a projected 3.5 percent, you would owe $104 more.

This also doesn’t account for property tax rate changes determined by local governing jurisdictions. As a hypothetical example, if the Austin school district raised its property tax rate from 1.222 percent to 1.276 percent, this 4.4 percent increase would erase your savings.

What about another likely scenario with both changes in the home value and tax rate?

In that case, the homeowner would owe an additional $110. This clearly shows that Proposition 1 will lead to lower property tax bills for homesteads than without it, leading to relief but very few cuts to a growing burden.

The short-term relief is similar to the reforms in 2006 induced by the Texas Supreme Court ruling that the state essentially had a statewide property tax, which is forbidden by the Texas Constitution. The Legislature bought down property taxes, leading to only a one-year decline in total property tax revenue, and held the school districts harmless by swapping it with a reformed business tax, known as the margin tax, that most agree should be eliminated.

Instead of providing short-term relief in the future or enacting a worse tax, the Texas Public Policy Foundation’s study highlights the benefits of abolishing property taxes and replacing them with a reformed sales tax so Texans can finally own property rather than renting it from the government, forever allowing them to reach their full potential.

​This will likely not happen overnight, as Proposition 1 banned a transfer tax on property, which there should never be a property tax and a sales tax on property. However, legislators should make a concerted effort to improve the well-being of struggling homeowners, renters and all Texans by considering an end to costly property taxes and substituting them with a more efficient sales tax.

Vance Ginn, Ph.D.​#LetPeopleProsper

I'm a free market economist based on the teachings of Chicago and Austrian schools of economics. I'm a classical liberal with interest in removing government barriers to competition to let people prosper. I grew up in Houston, Texas where I was a hard rock drummer who went on to be a first generation college graduate from Texas Tech University. I'm a recovering academic who now works at the Texas Public Policy Foundation in Austin.